U.S. markets closed
  • S&P Futures

    3,785.00
    -18.25 (-0.48%)
     
  • Dow Futures

    30,228.00
    -137.00 (-0.45%)
     
  • Nasdaq Futures

    11,583.50
    -57.25 (-0.49%)
     
  • Russell 2000 Futures

    1,768.90
    -12.60 (-0.71%)
     
  • Crude Oil

    85.97
    -0.55 (-0.64%)
     
  • Gold

    1,727.90
    -2.60 (-0.15%)
     
  • Silver

    20.90
    -0.20 (-0.94%)
     
  • EUR/USD

    0.9965
    -0.0021 (-0.21%)
     
  • 10-Yr Bond

    3.6170
    -0.0340 (-0.93%)
     
  • Vix

    29.07
    -1.03 (-3.42%)
     
  • GBP/USD

    1.1430
    -0.0045 (-0.39%)
     
  • USD/JPY

    144.1400
    -0.0590 (-0.04%)
     
  • BTC-USD

    20,213.16
    +634.26 (+3.24%)
     
  • CMC Crypto 200

    458.58
    +13.14 (+2.95%)
     
  • FTSE 100

    7,086.46
    +177.70 (+2.57%)
     
  • Nikkei 225

    27,085.97
    +93.76 (+0.35%)
     

AIR Reports Fourth Quarter 2021 Results; Full Year Results 8% Ahead of Initial Expectations; Leverage Reduced to 5.3x; Establishes 2022 FFO Guidance, at the Midpoint, of $2.40 Per Share.

·32 min read

DENVER, February 09, 2022--(BUSINESS WIRE)--Apartment Income REIT Corp. ("AIR") (NYSE: AIRC) announced today fourth quarter and full year results for 2021.

Chief Executive Officer Terry Considine comments: "AIR had a solid fourth quarter, completing a good year. Full year 2021 Same Store revenue and NOI were better by 330 and 510 basis points, respectively, than our initial guidance."

"Our properties are well occupied with January 2022 average daily occupancy at an all-time high of 98.4%."

"Asking rents today average approximately $2,600 and are above pre-COVID levels in seven of our eight core markets."

"During the fourth quarter and through January, we sold $1.4 billion of properties. Another $267 million of properties are under contract and expected to close this quarter. Pro forma for January sales and the sale of properties under contract, leverage to EBITDAre was 5.3x at December 31st."

"AIR’s corporate culture structure remains strong. During 2021, AIR was named a Denver Top Workplace for the ninth consecutive year, and in 2022 was named a National Top Workplace. Our team, strengthened through the previously announced additions of John McGrath and Joshua Minix, was further bolstered when Matthew O’Grady joined as Senior Vice-President, Capital Markets. The AIR board was refreshed with the election of Tom Bohjalian, Kristin Finney-Cooke, and Maggie Paláu Hernández. Average director tenure is now three years."

"In 2021, AIR's first year, we completed the strategic goals of the separation. This year, our simple and efficient business model, with best-in-class property operations, low G&A costs, and low leverage positions us well for strong internal and external growth. In 2022, we will seek to allocate capital particularly to properties that will benefit from AIR's operating acumen, which we expect will generate NOI growth in excess of market rates and drive attractive, long-term internal rates of return."

Chief Financial Officer Paul Beldin adds: "Full year 2021 Pro forma FFO of $2.14 per share was 8%, or $0.16, greater than the midpoint of our initial guidance."

"Fourth Quarter Pro forma FFO of $0.56 per share was equal to the midpoint of guidance due to better than anticipated Same Store operations, offset by higher legal and other costs. For the quarter, revenue and NOI grew sequentially by 1.7% and 3.5%, respectively. Same Store operating results exceeded pre-COVID levels, with fourth quarter 2021 revenue 1.3% above first quarter 2020."

"In 2022, we expect Same Store revenue growth of 8.9% to 9.9%, Same Store expense growth of 2.0% to 3.0%, and Same Store NOI growth of 11.0% to 13.0%. We also expect 2022 FFO per share to be $2.36 to $2.44, representing 12% growth at the midpoint. We expect year-end leverage to EBITDAre of approximately 5.5x, G&A costs, as a percentage of GAV, to decline, and plan for at least $500 million of acquisitions."

Chairman of the Board Tom Keltner added: "I want to offer the Board’s and my perspectives. We are delighted to be joined by three new, capable, and diverse colleagues: Tom, Kristin, and Maggie. They have embraced their duties and are excellent contributors. I want also to comment on the excellent results reported by Terry and Paul. They and the entire management team did a great job accomplishing the specific goals set by the Board: a focus on best-in-class operations, as measured by NOI growth and financial margins; disciplined capital allocation providing accretive growth; low G&A costs; and reduced leverage."

"We are particularly grateful that Terry insisted on defining rigorously what constitutes G&A and meeting that higher standard, even forfeiting $2.5 million of compensation so that the company was able to meet the target without cutting back on other staffing objectives."

Financial Results: Fourth Quarter Pro Forma FFO Per Share

2021

(all items per common share – diluted)

FOURTH QUARTER

THIRD QUARTER

YEAR-TO-DATE

Net income (loss)

$

2.37

$

0.06

$

2.89

NAREIT Funds From Operations (FFO)

$

(0.11

)

$

0.47

$

1.11

Pro forma adjustments*

$

0.67

$

0.09

$

1.03

Pro forma Funds From Operations (Pro forma FFO)

$

0.56

$

0.56

$

2.14

*Fourth quarter and year to date Pro forma adjustments include $105 million and $148 million, or $0.67 and $0.96 per share, respectively, of debt extinguishment costs from the prepayment of debt. For the full year, approximately 60% of the prepayment penalty reflects the mark-to-market on the debt and accelerates future interest expense. The remaining 40%, or $60 million, is an investment in higher future earnings, a $5.6 billion increase in our pool of unencumbered properties and increased financial flexibility. Please refer to Supplemental Schedule 1 for a complete listing of Pro forma adjustments.

AIR Operating Results: Full Year Revenue Up 1.7%; NOI Up 1.6%

The table below includes the operating results of the 65 properties of AIR that meet our definition of Same Store. In the fourth quarter, 27 properties were removed from the Same Store population due to their completed or planned sale. Same Store properties generated approximately 95% of AIR’s 2021 GAAP rental revenue.

FOURTH QUARTER

FULL YEAR

Year-over-Year

Sequential

Year-over-Year

($ in millions) *

2021

2020

Variance

3rd Qtr.

Variance

2021

2020

Variance

Revenue, before utility reimbursements

$

136.9

$

124.6

9.9

%

$

134.6

1.7

%

$

525.4

$

516.8

1.7

%

Expenses, net of utility reimbursements

36.1

36.4

(0.9

%)

37.2

(3.0

%)

146.4

143.6

2.0

%

Net operating income (NOI)

$

100.8

$

88.2

14.3

%

$

97.4

3.5

%

$

379.0

$

373.2

1.6

%

*Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 6.

Fourth quarter 2021 NOI margins were 73.7%, up 287 basis points from the fourth quarter of 2020. NOI margins benefited from revenue growth and negative expense growth, due to a decline of 380 basis points in controllable operating expenses.

Components of Same Store Revenue Growth – The table below summarizes the change in the components of our Same Store revenue growth.

FOURTH QUARTER

FULL YEAR

Same Store Revenue Components

Year-over-Year

Sequential

Year-over-Year

Residential Rents

3.5

%

1.7

%

(0.3

%)

Average Daily Occupancy

4.1

%

1.5

%

1.5

%

Residential Net Rental Income

7.6

%

3.2

%

1.2

%

Bad Debt

2.3

%

0.5

%

0.1

%

Late Fees and Other

(0.3

%)

(0.7

%)

(0.1

%)

Residential Revenue

9.6

%

3.0

%

1.2

%

Commercial Revenue

0.3

%

(1.3

%)

0.5

%

Same Store Revenue Growth

9.9

%

1.7

%

1.7

%

Same Store Rental Rates – We measure changes in rental rates by comparing, on a lease-by-lease basis, the effective rate on a newly executed lease to the effective rate on the expiring lease for that same apartment. A newly executed lease is classified either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal.

The table below details changes in lease rates, as well as the weighted-average (blended) lease rates for leases executed in the respective period. Transacted leases are those that became effective during a reporting period and are therefore the best measure of immediate effect on current revenues. Signed leases are those executed during a reporting period and are therefore the best measure of current activity.

FOURTH QUARTER

FULL YEAR

2021

2022

2021

2020*

Variance

2021

2020*

Variance

Oct*

Nov

Dec

Jan

Transacted Leases

Renewal rent changes

12.1%

0.7%

11.4%

5.3%

3.7%

1.6%

11.7%

12.5%

14.0%

10.8%

New lease rent changes

13.9%

(11.5%)

25.4%

3.2%

(6.4%)

9.6%

13.9%

15.7%

12.0%

12.4%

Weighted-average rent changes

13.5%

(9.4%)

22.9%

4.1%

(2.0%)

6.1%

13.2%

15.1%

12.2%

12.2%

Signed Leases

Renewal rent changes

11.0%

1.3%

9.7%

5.7%

3.5%

2.2%

14.2%

11.5%

10.0%

11.7%

New lease rent changes

13.5%

(11.3%)

24.8%

3.9%

(6.6%)

10.5%

14.0%

12.5%

14.0%

14.9%

Weighted-average rent changes

12.8%

(8.7%)

21.5%

4.7%

(2.2%)

6.9%

14.0%

12.3%

12.2%

13.3%

Average Daily Occupancy

98.1%

94.1%

4.0%

96.3%

94.8%

1.5%

97.8%

98.2%

98.3%

98.4%

*Transacted and signed lease rates and average daily occupancy are based on our current Same Store population. Amounts may differ from those previously reported.

Same Store Markets – Typically, rental rates soften in the fourth quarter due to lower demand than in the peak months of the second and third quarters. In 2021, that trend did not materialize. Demand remained strong throughout the fourth quarter, resulting in pricing remaining stable through the end of the year. As of December 31st, effective asking rates were up 23% from the fourth quarter of 2020. As a result, signed rates continued to be strong, with new lease rates up 13.5% and renewals up 11.0% from the prior leases.

Consistent with our expectations, average daily occupancy trended upwards from 96.5% in the third quarter to 98.1% in the fourth quarter, with January average daily occupancy reaching a record high of 98.4%.

Rent Collection Update

We measure residential rent collection as the dollar value of payments received as a percentage of all residential amounts owed. In the fourth quarter, we recognized 99.1% of all residential revenue owed during the quarter, treating the balance of 0.9% as bad debt. 3.0% of our residents have extended delinquencies, much of which we expect to collect either from the residents (based on their high credit scores) or from rent relief programs established by the State of California. 97.0% of our residents pay rent timely with bad debt under 30 basis points of revenue, a level still somewhat elevated from our historical experience.

As of December 31, 2021, our proportionate share of gross residential accounts receivable was $11.1 million. After consideration of tenant security deposits and reserves for uncollectible amounts, our net exposure is $0.9 million, an amount expected to be collected during the first quarter of 2022.

Of the $11.1 million of uncollected accounts receivable, 78% relates to California residents. During the quarter, we received $3.7 million from California’s rent relief program. We await the state’s response to an additional $2.2 million of rent relief requests made. We are working with residents to file an additional $3.9 million of claims.

We remain cautiously optimistic that this program will allow us to recover rents uncollected in 2020 or 2021. We expect bad debt expense to decline with the end of emergency ordinances that suspend contractual remedies for non-payment of rent.

Portfolio Management and Quality

Our portfolio of apartment communities is diversified across primarily "A" and "B" price points, averaging "B/B+" in quality, and is also diversified across several of the largest markets in the United States. During 2021, we exited the Chicago and New York markets, and, subsequent to year-end, reduced our exposure to California. We added to our portfolio in Florida through a $223 million acquisition, and improved the quality of our Washington, D.C. portfolio through acquiring four properties, whose NOI growth we expect will exceed market NOI growth by more than 10% during each of the next two years. Our 2021 portfolio management activities increased our average rents by approximately $150 per home, and reduced the portfolio's average age by one year. Our current portfolio is of a higher quality, is expected to require lower recurring capital replacement spending, and has a greater allocation to states with greater economic growth and a more reliable rule of law.

Transactions

Acquisitions

As previously announced, during the fourth quarter, we acquired for ~$510 million a portfolio of four properties located in the Washington, D.C. area, with 1,383 apartment homes, 84,000 square feet of office and commercial space, and two vacant land parcels suitable for development of 498 additional apartment homes, valued at approximately $20 million. We expect a 4.3% NOI yield in 2022. This yield is anticipated to approach ~6% by 2024, approximately 130 basis points greater than the properties sold to fund the acquisition, adding ~$0.04 to FFO per share. This spread is expected to increase over time as the long-term IRR is expected to be 9.0%, a 40% increase over the long-term IRR of holding the properties sold.

Dispositions

During the fourth quarter, we sold 15 apartment communities located in New York City and Washington, D.C., with 1,337 apartment homes for gross proceeds of $472 million. Net sales proceeds from these transactions were $432 million.

As previously announced, during the quarter, we formed a joint venture with an affiliate of Blackstone by selling for $408 million an 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with 20% ownership, and earns various fees for providing property management and corporate services.

After year end, we sold an additional seven apartment communities located in San Diego, Los Angeles, and the Bay Area for gross proceeds of $507 million. We are under contract to sell an additional $267 million of properties located in Chicago, New York City, and California. In aggregate, the $1.7 billion of property sales priced at an implied NOI cap rate of 4.3%, and a free cash flow cap rate of 4.0%; an approximate 15% premium to their estimated 2020 fair market value, pre-COVID.

Balance Sheet

We seek to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage and primarily long-dated debt. We maintain financial flexibility through ample unused and available credit, holding properties with substantial value unencumbered by property debt, maintaining an investment grade rating, and using partners’ capital when it enhances financial returns or reduces investment risk.

Components of Leverage

Our leverage includes our share of long-term, non-recourse property debt encumbering our apartment communities, together with outstanding borrowings under our revolving credit facility, our term loans, and our preferred equity.

AS OF DECEMBER 31, 2021

($ in millions)*

Amount

% of Total

Weighted-Avg.
Maturity (Yrs.)

AIR share of long-term, non-recourse property debt, continuing portfolio

$

1,909

54

%

8.7

AIR share of long-term, non-recourse property debt of properties expected to be sold

84

2

%

10.0

Term loans

1,150

33

%

3.1

Outstanding borrowings on revolving credit facility

304

9

%

4.3

Preferred equity**

81

2

%

9.9

Total Leverage

$

3,529

100

%

6.6

Cash and restricted cash

(81

)

Notes receivable from Aimco***

(534

)

Net Leverage

$

2,914

6.6

Leverage reduction funded by January property sales

(499

)

Net Leverage, Pro forma for January sales

$

2,416

6.4

Incremental leverage reduction funded by property sales during the balance of the first quarter

(261

)

Net Leverage, Pro forma for first quarter property sales

$

2,155

6.5

*Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 5.

** AIR’s Preferred equity is perpetual in nature; however, for illustrative purposes, we have computed the weighted-average maturity of our preferred OP Units assuming a 10-year maturity and preferred stock assuming it is called at the expiration of the no-call period.

*** We have notes receivable from Aimco with an aggregate principal amount of $534 million. The notes will mature on January 31, 2024, and are secured by a pool of properties owned by Aimco. We consider the notes a reduction of leverage as we expect proceeds to be used to repay loan amounts currently outstanding.

Leverage Reduction – Complete

We target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x.

Pro forma for January sales activity, Net Leverage to Adjusted EBITDAre is 5.8x. Pro forma for additional first quarter sales activity, Net Leverage to Adjusted EBITDAre is further reduced by 0.5x of a turn to 5.3x.

Liquidity

We use our revolving credit facility for working capital and other short-term purposes and to secure letters of credit. At December 31, 2021, our share of cash and restricted cash was $81 million and we had the capacity to borrow up to $285 million under our revolving credit facility, bringing total liquidity to $366 million.

We manage our financial flexibility by maintaining an investment grade rating and holding communities that are unencumbered by property debt. AIR has been rated BBB by Standard & Poor’s. As of December 31, 2021 and excluding properties sold and expected to sell during the first quarter, we held unencumbered communities with an estimated fair market value of approximately $8.4 billion; triple the amount from December 31, 2020.

We anticipate seeking an investment grade credit rating from Moody’s. In assigning ratings, Moody’s places significant emphasis on the amount of non-recourse property debt as percentage of the undepreciated book value of a company’s assets. Pro forma for anticipated first quarter property sales, we anticipate that our share of property debt will approximate Moody's targets.

Dividend

As planned, AIR's refreshed tax basis resulted in a tax efficient dividend paid to shareholders. In 2021, AIR's dividend of $1.74 per share was one-third taxable as capital gains, and two-thirds tax-free return of capital, increasing its after-tax yield to taxable investors.

On February 1, 2022, our Board of Directors declared a quarterly cash dividend of $0.45 per share of AIR Common Stock. This amount is payable on February 25, 2022, to stockholders of record on February 17, 2022.

In setting AIR's 2022 dividend, our Board of Directors anticipates targeting a dividend level of approximately 75% of full year FFO per share. We further expect that the after-tax dividend will continue to benefit from AIR's refreshed tax basis.

Corporate Responsibility Update

Corporate responsibility is a longstanding priority. We strive for transparency, and continuous improvement, as measured by GRESB. We are aligned with the UN Sustainable Development Goals. In 2021, we improved our GRESB scores over 2020 by 21%, including a perfect score in the ‘social’ metrics and a near perfect score in Governance. We have established targets for energy, water, and greenhouse gas reductions, embarked on environmental certifications for our properties, and are implementing resilience strategies including physical and climate risk assessments of the portfolio.

Our team is a critical part of our success. AIR has been named a Denver Top Workplace for nine consecutive years, and in 2022 was named a National Top Workplaces winner.

2022 Outlook

We expect 2022 Pro forma FFO per share in the range of $2.36 to $2.44. At the guidance range midpoint, projected growth in 2022 FFO of $0.26, or 12%, reflects:

  • $0.29 per share growth from Same Store operations

  • $0.14 per share net contribution from properties acquired in 2021 and those contemplated in 2022 guidance

  • $0.30 per share reduction in interest expense resulting from debt payoffs; offset partially by

  • ($0.45) per share dilution from property sales, and

  • ($0.02) per share dilution from other items, net.

Our guidance ranges are based on the following components:

FULL YEAR 2022

FULL YEAR 2021

($ Amounts represent AIR Share)

Net Income (loss) per share (1)

$(0.33) to $(0.20)

$2.89

Pro forma FFO per share

$2.36 to $2.44

$2.14

Pro forma FFO per share at the mid-point

$2.40

Same Store Operating Components of NAREIT FFO

Revenue change compared to prior year (2)

8.9% to 9.9%

1.7%

Expense change compared to prior year (3)

3.0% to 2.0%

2.0%

NOI change compared to prior year

11.0% to 13.0%

1.6%

Offsite Costs

General and administrative expenses, as defined below (4)

~$17M

$20M

Other Earnings

Lease income (5)

~$30M

$27M

Value of property acquisitions

~$500M

$726M

Proceeds from dispositions of real estate, net

~$774M

$880M

AIR Share of Capital Investments

Capital Enhancements

$90M to $110M

$80M

Balance Sheet

Year-end Net Leverage to Adjusted EBITDAre (5)

~5.5x

5.3x

(1) Does not include gains from anticipated 2022 property sales.

(2) Same Store Revenue is anticipated to grow by 9.4% at the midpoint. This growth is primarily comprised of:

  • 1.1% ADO growth, which assumes ADO consistent with our second half 2021 result of 97.3%;

  • 6.0% rate growth based on the year-end 2021 rent roll and embedded loss-to-lease; and

  • 2.3% from other factors, including incremental market rate growth and lower bad debt expense.

(3) Same Store Expenses are anticipated to increase by 2.5% at the midpoint. Controllable operating expenses are expected to be flat, consistent with 2021's results. Since 2008, AIR's controllable operating expenses have declined at an average annual rate of 10 basis points.

(4) For the purposes of this presentation, General and Administrative expenses are defined as follows:

  • All costs that are reported as G&A expenses in our consolidated statements of operations, in accordance with GAAP. In 2021, AIR’s G&A expense was reduced by a $5.8 million payment from Aimco. AIR anticipates the same reimbursement in 2022.

  • Plus Property management costs more than 3% of property revenues, to eliminate any distortion from allocation of costs

  • Less Asset management fees earned from joint ventures, as asset management fees are paid by joint venture partners in reimbursement of G&A services provided by AIR

  • Effective in 2022, G&A includes the deprecation of capitalized costs of non-real estate assets. Previously, these costs were presented separately as "depreciation and amortization related to non-real estate assets" in Supplemental Schedule 2a.

  • If G&A expenses exceed 15 basis points of GAV, our CEO has agreed to subordinate his compensation, if necessary, to meet this metric. Our CEO’s compensation was subordinated by $2.5 million in 2021. Future subordination is not expected to be necessary in 2022 and in future years.

(5) Presented net of FFO and Pro forma FFO adjustments.

In the first quarter of 2022, AIR anticipates Pro forma FFO between $0.53 and $0.57 per share.

AIR Strategic Objectives

We created AIR to be the most efficient and effective way to invest in U.S. multi-family real estate, due to its simplified business model and diversified portfolio of stabilized apartment communities. The Board has set the following strategic objectives on a go forward basis:

  • Pursue a simple, efficient, and predictable business model with a low risk premium

  • Maintain a high quality and diversified portfolio of stabilized multi-family properties

  • Continuously improve on our best in class property operations platform to generate above market organic growth

  • Maintain an efficient cost structure with G&A less than or equal to 15 basis points of Gross Asset Value

  • Maintain a flexible, low levered balance sheet so that AIR is well positioned to access the public bond market when doing so makes sense

  • Enhance portfolio quality through disciplined approach to capital allocation; targeting highly accretive opportunities on a leverage neutral basis

  • Develop private capital partnerships as an alternative source of equity capital for accretive growth

  • Continued commitment to corporate responsibility with transparent and measurable goals

Earnings Conference Call Information

Live Conference Call:

Conference Call Replay:

Thursday, February 10, 2022 at 1:00 p.m. ET

Replay available until March 10, 2022

Domestic Dial-In Number: 1-844-200-6205

Domestic Dial-In Number: 1-866-813-9403

International Dial-In Number: 1-929-526-1599

International Dial-In Number: +44-204-525-0658

Passcode: 495964

Passcode: 717755

Live webcast and replay:

investors.aircommunities.com

Supplemental Information

The full text of this Earnings Release and the Supplemental Information referenced in this release is available on AIR’s website at investors.aircommunities.com.

Glossary & Reconciliations of Non-GAAP Financial and Operating Measures

Financial and operating measures found in this Earnings Release and the Supplemental Information include certain financial measures used by AIR management that are measures not defined under accounting principles generally accepted in the United States ("GAAP"). Certain AIR terms and Non-GAAP measures are defined in the Glossary in the Supplemental Information and Non-GAAP measures reconciled to the most comparable GAAP measures.

About AIR

AIR is a real estate investment trust focused on the ownership and management of quality apartment communities located in the largest markets in the United States. AIR is one of the country’s largest owners and operators of apartments, with 84 communities in 12 states and the District of Columbia. AIR common shares are traded on the New York Stock Exchange under the ticker symbol AIRC, and are included in the S&P 400. For more information about AIR, please visit our website at www.aircommunities.com.

Forward-looking Statements

This Earnings Release and Supplemental Information contain forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding projected results and specifically forecasts of 2022 results, including but not limited to: NAREIT FFO, Pro forma FFO and selected components thereof; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; expectations regarding acquisitions as well as sales and joint ventures and the use of proceeds thereof; and AIR liquidity and leverage metrics. We caution investors not to place undue reliance on any such forward-looking statements.

These forward-looking statements are based on management’s current expectations, estimates and assumptions and subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements, including, but not limited to: the effects of the coronavirus pandemic on AIR’s business and on the global and U.S. economies generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described herein; real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including inflation, the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing and effects of acquisitions and dispositions; changes in operating costs, including energy costs; negative economic conditions in our geographies of operation; loss of key personnel; AIR’s ability to maintain current or meet projected occupancy, rental rate and property operating results; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently or previously owned by AIR; our relationship with Aimco after the business separation; the ability and willingness of the parties to the business separation to meet and/or perform their obligations under the related contractual arrangements and any of their obligations to indemnify, defend and hold the other party harmless from and against various claims, litigation and liabilities; and the ability to achieve the expected benefits from the business separation. Other risks and uncertainties are described in filings by AIR with the Securities and Exchange Commission ("SEC"), including the section entitled "Risk Factors" in Item 1A of AIR’s Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent filings with the SEC.

In addition, AIR’s current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and depends on AIR’s ability to meet the various requirements imposed by the Code, through actual operating results, distribution levels and diversity of stock ownership.

These forward-looking statements reflect management’s judgment as of this date, and AIR assumes no obligation to revise or update them to reflect future events or circumstances. This earnings release does not constitute an offer of securities for sale.

Consolidated Statements of Operations

(in thousands, except per share data) (unaudited)

The separation resulted in Aimco being presented as the predecessor for AIR’s financial statements. This presentation is in accordance with GAAP and is due primarily to the relative significance of AIR’s business as compared to Aimco before the separation. The financial results prior to the separation on December 15, 2020, include the financial results of AIR’s predecessor, and the financial results attributable to the apartment communities retained by Aimco in the separation are presented as discontinued operations.

Three Months Ended

Year Ended

December 31,

December 31,

2021

2020

2021

2020

REVENUES

Rental and other property revenues (1)

$

191,950

$

173,746

$

733,483

$

719,556

Other revenues

2,380

7,370

Total revenues

194,330

173,746

740,853

719,556

OPERATING EXPENSES

Property operating expenses (1)

64,801

67,753

268,101

263,093

Depreciation and amortization

87,550

81,284

319,742

320,943

General and administrative expenses (2)

3,075

9,589

18,585

32,320

Provision for real estate impairment loss

47,281

47,281

Other expenses, net

18,013

50,691

27,220

73,860

Total operating expenses

173,439

256,598

633,648

737,497

Interest income (3)

13,563

3,590

58,651

12,374

Interest expense

(29,272

)

(34,308

)

(129,467

)

(147,035

)

Loss on extinguishment of debt

(111,857

)

(396

)

(156,707

)

(13,324

)

Gain on derecognition of leased properties and dispositions of real estate

500,349

71,889

594,861

119,215

Income (loss) from unconsolidated real estate partnerships

(565

)

(565

)

Mezzanine investment income, net (4)

7,023

27,576

Income (loss) from continuing operations before income tax benefit (expense) and discontinued operations

393,109

(35,054

)

473,978

(19,135

)

Income tax benefit (expense)

6,016

(97,115

)

5,246

(95,437

)

Income (loss) from continuing operations

399,125

(132,169

)

479,224

(114,572

)

Income from discontinued operations, net of tax

1,459

11,228

Net income (loss)

399,125

(130,710

)

479,224

(103,344

)

Noncontrolling interests:

Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships

(174

)

645

3,243

798

Net income attributable to preferred noncontrolling interests in AIR OP

(1,603

)

(1,604

)

(6,413

)

(7,019

)

Net (income) loss attributable to common noncontrolling interests in AIR OP

(24,467

)

6,572

(28,433

)

5,438

Net (income) loss attributable to noncontrolling interests

(26,244

)

5,613

(31,603

)

(783

)

Net income (loss) attributable to AIR

372,881

(125,097

)

447,621

(104,127

)

Net income attributable to AIR preferred stockholders

(45

)

(181

)

Net income attributable to participating securities

(167

)

(77

)

(316

)

(202

)

Net income (loss) attributable to AIR common stockholders

$

372,669

$

(125,174

)

$

447,124

$

(104,329

)

Earnings (loss) per common share – basic

Net income (loss) attributable to AIR common stockholders per share – basic

$

2.38

$

(0.96

)

$

2.90

$

(0.85

)

Earnings (loss) per common share – diluted

Net income (loss) attributable to AIR common stockholders per share – diluted

$

2.37

$

(0.96

)

$

2.89

$

(0.85

)

Weighted-average common shares outstanding – basic (5)

156,673

129,911

154,135

122,446

Weighted-average common shares outstanding – diluted (5)

157,062

129,911

154,503

122,446

(1)

Rental and other property revenues for the three months and year ended December 31, 2021, is inclusive of $16.9 million and $73.6 million, respectively, of revenues related to sold properties. Property operating expenses for the three months and year ended December 31, 2021, is inclusive of $4.7 million and $22.7 million, respectively, of expenses related to sold properties. Rental and other property revenues for the three months and year ended December 31, 2020, is inclusive of $18.9 million and $82.2 million, respectively, of revenues related to sold properties. Property operating expenses for the three months and year ended December 31, 2020, is inclusive of $6.3 million and $26.1 million, respectively, of expenses related to sold properties.

Rental and other property revenues and property operating expenses for the year ended December 31, 2021, are inclusive of $21.7 million of revenues and $5.6 million of expenses, respectively, related to the third party share of properties included Washington, D.C. joint venture. Rental and other property revenues for the three months and year ended December 31, 2020, is inclusive of $7.1 million and $28.5 million, respectively, of revenues related to the third party share of properties included in the Washington, D.C. joint venture. Property operating expenses for the three months and year ended December 31, 2020, is inclusive of $1.8 million and $7.4 million, respectively, of expenses related to the third party share of properties included in the Washington, D.C. joint venture.

(2)

In setting our G&A benchmark of 15 bps of Gross Asset Value, we consider platform fees earned on our California joint venture as a reduction of general and administrative expenses. In accordance with GAAP, general and administrative expenses are shown gross of these platform fees and they are instead included in the determination of net income (loss) attributable to noncontrolling interests in consolidated real estate partnerships.

(3)

Interest income for the three months and year ended December 31, 2021, includes $7.0 million and $27.8 million, respectively, of income associated with our notes receivable from Aimco, and $6.6 million and $26.0 million, respectively, of interest income associated with properties leased to Aimco.

(4)

In connection with the separation, Aimco was allocated economic ownership of the mezzanine loan investment and option to acquire a 30% equity interest in the partnership. Subsequent to the separation, all risks and rewards of ownership are Aimco’s, but legal transfer has not occurred. During the three months and year ended December 31, 2020, we recognized $7.0 million and $27.6 million of income, respectively, in connection with the mezzanine loan. For the year ended December 31, 2021, the mezzanine investment income was entirely offset by an expense to recognize the requirement that this income be contributed to Aimco.

(5)

During the fourth quarter of 2020, Aimco completed a reverse stock split and a special dividend paid primarily in stock. For stock splits, GAAP requires the restatement of weighted-average shares as if the reverse stock split occurred at the beginning of the period presented, while shares issued in the special dividend are included in weighted-average shares outstanding from the date issued. If the special dividend and reverse stock split were treated similarly for GAAP, shares outstanding for the three months and year ended December 31, 2020, would be 148,570 and 148,532, respectively.

Consolidated Balance Sheets

(in thousands) (unaudited)

December 31,

December 31,

2021

2020

Assets

Real estate

$

6,885,081

$

7,468,864

Accumulated depreciation

(2,284,793

)

(2,455,505

)

Net real estate

4,600,288

5,013,359

Cash and cash equivalents

67,320

44,214

Restricted cash

25,441

29,266

Notes receivable from Aimco

534,127

534,127

Leased real estate assets

466,355

Goodwill

32,286

32,286

Other assets (1)

568,051

576,026

Assets held for sale

146,492

Total Assets

$

6,440,360

$

6,229,278

Liabilities and Equity

Non-recourse property debt

$

2,305,756

$

3,646,093

Debt issue costs

(11,017

)

(17,857

)

Non-recourse property debt, net

2,294,739

3,628,236

Term loans, net

1,144,547

349,164

Revolving credit facility borrowings

304,000

265,600

Accrued liabilities and other (1)

592,774

598,736

Liabilities related to assets held for sale

85,775

Total Liabilities

4,421,835

4,841,736

Preferred noncontrolling interests in AIR OP

79,370

79,449

Equity:

Perpetual preferred stock

2,129

2,000

Class A Common Stock

1,570

1,489

Additional paid-in capital

3,763,105

3,432,121

Accumulated other comprehensive income

3,039

Distributions in excess of earnings

(1,953,779

)

(2,131,798

)

Total AIR equity

1,813,025

1,306,851

Noncontrolling interests in consolidated real estate partnerships

(70,883

)

(61,943

)

Common noncontrolling interests in AIR OP

197,013

63,185

Total Equity

1,939,155

1,308,093

Total Liabilities and Equity

$

6,440,360

$

6,229,278

(1) Other assets includes the Parkmerced mezzanine investment and the fair value of an associated interest rate swap option, and accrued liabilities and other includes the offsetting liabilities. The benefits and risks of ownership of both the Parkmerced mezzanine investment and the interest rate swap option have been transferred to Aimco, but legal transfer has not occurred.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220209006102/en/

Contacts

Beth Hagan
(303) 757-8101
investors@aircommunities.com